t Visited Getting Started Ritz Company had the following stock outstanding and R

Question

t Visited Getting Started Ritz Company had the following stock outstanding and Retained Earnings at December 31, 2015: $400,000 Common stock (par $1; outstanding, 400,000 shares) Preferred stock, 7% (par $10, outstanding, 20,000 shares) Retained earnings 200,000 890,000 On December 31, 2015, the board of directors is considering the distribution of a cash dividend to the common and preferred stockholders. No dividends were declared during 2013 or 2014 Three independent cases are assumed Case A The preferred stock is noncumulative, the total amount of 2015 dividends would be $20,000 Case B. The preferred stock is cumulative, the total amount of 2015 dividends would be $20,000 Case C: Same as Case B, except the amount is $65,000 Required Dividends were not in arrears prior to 2013 1-a. Compute the amount of dividends in total payable to each class of stockholders if dividends were declared as described in each case Case A Case B Case C Preferred Common Total

Explanation / Answer

Ritz Company (All amounts in $) Case A Preference Shares are non-cumulative Dividend Payable and Paid to Preference Shareholders 20,000 shares @ 7% X $ 10 per share 14000 Dividend Payable and Paid to Common Stockholders 6000 20000 Case B Preference Shares are cumulative, dividends in arrears since 2013 Dividend Payable and Paid to Preference Shareholders 20,000 shares X $ 10 per share X 7% X 3 years 42000 Restricted to 20000 No dividend paid to Common Stockholders Case C Preference Shares are cumulative, dividends in arrears since 2013 Dividend Payable and Paid to Preference Shareholders 20,000 shares X $ 10 per share X 7% X 3 years 42000 Dividend Payable and Paid to Common Stockholders 23000 65000

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